Dental M&A: What You Need to Know
Navigating the world of mergers and acquisitions (M&A) in the dental industry can be complex and overwhelming. Whether you’re considering selling your dental practice or looking to expand through acquisitions, understanding the key elements of dental M&A is crucial. Here’s what you need to know:
Multiple Types of Buyers
When selling your dental practice, it’s essential to understand the different types of potential buyers, as each brings its own advantages and considerations.
- Private Equity (PE): Private equity firms are investment groups that acquire businesses to grow their value over time. They often bring substantial capital and business expertise, aiming to enhance operational efficiencies and expand market reach. Selling to a PE firm can be attractive if you’re looking for significant financial backing and a partnership to drive growth. Private equity buyers typically require a higher minimum investment as they seek multiple locations to establish a platform business for continued scaling.
- Dental Support Organizations (DSO): DSOs provide non-clinical support to dental practices, allowing dentists to focus on patient care. DSOs can offer favorable terms, including cost savings on supplies and administrative support. Selling to a DSO can provide stability and resources while preserving clinical autonomy. This has been the most popular option over the last decade as DSO’s come in all shapes and flavors, allowing you to pick exactly what you’re looking for. Additionally, their investment size is the most flexible out of these options.
- Other Dental Practices: Selling to another dental practice, whether it’s an individual dentist or a group practice, can offer a smoother transition for your patients and staff. There is often less diligence involved and typically a quicker process than the other options. This route is commonly taken when selling to a local practice to join forces and capture a larger market share. While this option doesn’t typically yield the highest value, the benefit can outweigh the difference in purchase price.
Different Components of an Offer
With each offer, you’ll receive a variety of the following components which can greatly impact the overall value and structure of a deal.
- Cash: The most straightforward component, provides immediate liquidity to the seller. This typically makes up a majority of an offer and will run anywhere from 50% to 80% of the total consideration.
- Joint Venture (JV): A JV involves forming a partnership between the buyer and the seller. This structure allows you to retain a stake in the practice and benefit from future growth while leveraging the buyer’s resources and expertise. As part of this JV, you will receive distributions based on the profitability of the practice. JV will range anywhere from 10% to 30% of an offer.
- Equity: Part of your offer might include equity in the parent company. This equity is typically illiquid but offers a way to invest alongside the DSO and their future performance. You will have the option to cash out this equity when a sale occurs, offering a differentiated investment vehicle. Equity will range anywhere from 10 to 30% of an offer.
Types of Transaction Structures
Understanding the different transaction structures is vital to determining the best approach for your situation.
- Asset Purchase: In an asset purchase, the buyer typically acquires the assets of a practice and requires that the liabilities are satisfied at close. This is different than a stock purchase where they acquire the entire entity. This structure allows for greater flexibility in selecting which assets to assume. This is the most common structure used across Dental M&A.
- Stock Purchase: In a stock purchase, the buyer acquires the entire entity, including all assets and liabilities. This structure is simpler in terms of transferring ownership but may come with more significant due diligence requirements, as the buyer inherits all existing liabilities and obligations of the practice.
Don’t Go at It Alone
Embarking on the M&A journey without professional guidance can be risky. The dental industry has unique challenges and opportunities that require specialized knowledge. Engaging with experienced advisors can help you navigate the process, ensuring you make informed decisions and achieve the best outcomes. Professional advisors can provide invaluable insights into valuation, market trends, and negotiation strategies, helping you avoid common pitfalls and maximizing the outcome of your transaction. At Ascend Strategic Partners, we specialize in dental M&A, offering expert advice and tailored solutions to help you reach your goals. Contact us today to learn more about how we can assist you in your M&A journey.
